What was triggering it was an avoidance of thinking about the pain in my lower legs. For several days, both of my ankles and calves were hurting quite a bit and, rather than addressing it head on, I tried to avoid it. I would get sucked into a story or into a game and then that nagging pain would go away or at least be reduced for a while.

I didn’t consciously realize what was going on, but after a few days, I really began to notice my change in routine. Why was I drawn to reading and playing video games so much?

Whenever I am struggling with something in my life, I usually find myself drawn more towards reading and playing video games. I do both of these things a little bit ordinarily (I read more than I play video games, by far), but when I’m finding some aspect of my life difficult to deal with, I usually accelerate on both of these things. I’ll find reasons to spend whole afternoons reading, or I’ll stay up half the night playing a game against a friend halfway across the country.

For the longest time, I didn’t recognize the things I would do to “block out” the problems I was having. I viewed such activities as a sign that I was “down,” not necessarily that I was trying to avoid facing a specific problem in my life.

Today, though, I recognize that response. I know that when I’m drawn to spend a significant chunk of my spare time playing video games or most of my spare time reading, I’m trying to avoid something in my life.

Sarah has a response, too. She reads voraciously. If something’s bothering her, she digs into a book.

My oldest son even has a response like this. When something’s bothering him, he’ll play by himself almost exclusively. When he’s feeling good about things, he’ll play heavily with his siblings and with his parents.

From what I’ve seen, most people have some sort of “escape mode” that they fall into when they’re trying to avoid a problem in their life. Some people eat. Some people watch tons of television. Other people play games. Some people read. Some people get drunk. Others weed their garden obsessively.

We do it to “escape” for a moment, to blot out whatever it is in our life that’s stressing us out. Often, we don’t even know what we’re escaping from. It might not have even clicked in our conscious mind. I know that’s often the case for me.

The key is to recognize when we’re trying to escape. What kind of patterns do we fall into when we’re trying to avoid something? Keep an eye out for those patterns in your life and you see the warning signs of something going on, even if it’s not something you’re consciously aware of.

When you see yourself lapsing into that pattern, even if you don’t see anything wrong, stop yourself. Spend some time figuring out what the problem is.

Often, when you face a challenge in your life head-on, you’ll find that it’s easily solvable.

So, how did I deal with the leg pain? I started carefully watching my behavior each day. I noticed pretty quickly that I didn’t usually wake up with the pain, but that it grew throughout the day on a typical workday.

Eventually, after examining what I was doing, I figured out the problem. My work chair has been having some mechanical difficulties lately and it doesn’t rise up as high as it once did. The maximum height adjustment simply isn’t as high as it used to be, which is a bit of a problem for me.

So, to compensate, I migrated to sitting in a bit of a cross-legged pattern, with my feet crossed under me while working. During the day, I’d adjust my legs little by little until my feet were tightly interlocked, and if I held that position for very long, my ankles and calves would start getting mighty sore.

The problem wasn’t some nasty injury. It was merely that I needed a different chair for my work.

Often, when I find myself regressing into “blocking” behaviors, I’m avoiding something worrisome that turns out to not be all that big of a deal. I can usually solve that problem pretty easily if I just focus on it. The challenge is noticing the problem consciously before I’ve wasted too much time and energy on avoidance behaviors.

What are your avoidance behaviors? What do you unconsciously or automatically do in the face of something stressful that you don’t want to deal with? What do you do when you catch yourself falling into those patterns?

Keep an eye out for those behaviors. When you see them, start asking yourself questions about it and look for the problems in your life, then focus on addressing those problems. They might be easy problems or they might be hard ones, but avoiding them is just going to cause you to continue to waste time, energy, and money on whatever you do to avoid them. On the other hand, if you start addressing the problem head on, you might just find that those avoidance behaviors melt away, leaving you with a clean slate and a problem solved.

The post Blocking What We Can’t Deal With appeared first on The Simple Dollar.

What I often don’t recall is when they do things that they shouldn’t. If you ask me at the end of the day what bad decisions they had made, I would have a hard time recalling more than one or two of them.

I know on some level that there are things that they do wrong. They make messes. They leave their coats out. They’re incredibly noisy at times. The sibling competitiveness between our two older children sometimes reaches dangerous heights. They don’t listen at times. They make horrific messes at the dinner table.

The thing is, my ongoing memory of these events is pretty selective. We’ll handle a situation, we’ll move on from it, and I’ll forget about it. I remember them later in an aggregate sense, knowing, for example, that they’ve made big messes on spaghetti night at the dinner table. At the end of a given day, though, I don’t specifically recall many of the little things they’ve done wrong.

This is selective memory at work. My mind, on some level, works through the events of the day, chooses to remember some, and tosses aside other things.

One of my biggest financial challenges was recognizing – and overcoming – the fact that my mind does the same thing with spending decisions.

I’ll buy a pack of gum at the gas station and forget about it. I’ll buy something online and forget about it. I’ll buy a few goodies at the store and forget about them.

These are minor events, of course, but waht’s worrisome is how easily the brain discards them, even though they each do have financial impact on my life. I’ll forget about $5 purchase after $5 purchase, and it doesn’t take too many of those to start adding up to a real chunk of one’s budget.

Over a long period, I’ve essentially trained myself to stop those little incidental purchases, but that wasn’t a good solution when I was first trying to get my spending and finances under control. I had to use other tactics.

First, I kept a very careful money diary. Whenever I spent any money, even if I just tossed a quarter into a Salvation Army kettle, I would pull out a pocket notebook and write it down. I did this by keeping the notebook and pen literally inside my wallet, with the cover of the notebook jammed down over the wallet pockets. Whenever I reached into my pocket, I felt it.

The act of writing in that money diary was a constant reminder of how many trickles of money were exiting my life, but the shocking part came when I totaled up the numbers in that diary.

I had come to realize that I was spending money needlessly on a pretty regular basis, but seeing that first monthly total was one of the biggest shockers I got during my financial recovery. I simply couldn’t believe how much I was spending on foolish and unnecessary stuff.

This shock pushed me into the next phase, which was where I started to very carefully consider each purchase. I began to spend a lot of time shopping at this point because I would think really carefully about everything I put into my cart or carried to the checkout.

Did I need this item? Could I do without it? Is there a less expensive option to solve my problem? I pushed those thoughts to the forefront with every single financial transaction I made.

The goal of all of this was to make myself deeply understand the impact of each little decision I made and how they added up to a painful financial result.

Gradually, I began to view not buying those little things as the new normal and I was able to return to a faster approach to grocery shopping. I simply don’t put most of those things in my cart any more, and when I do buy something unnecessary, I fully understand why I’m buying it and what the consequences are of that purchase.

The savings from this shift is tremendous, and it was all about overcoming my selective memory, proving to myself that my choices were actually pretty awful, and then working to improve those choices.

The post Selective Memory and Your Wallet appeared first on The Simple Dollar.

Of course, there are many opportunities to utilize passive barriers in your own financial life. I certainly use them in my own life in order to subtly push myself into good financial habits.

Here are nine passive barriers you can utilize in your own life to encourage better financial results:

Hide your credit cards
Freeze them in ice (actually, I should make a post about doing just that…). Put them in an envelope in the attic. Delete the numbers from your online accounts. Cut them up, even. The entire point is to make it more difficult for you to gain access to your credit cards to use them for impulsive spending. If you don’t have the card with you, it’s pretty hard to buy something you don’t need on credit, isn’t it?

Set up automatic savings transfers
It’s easy to tell ourselves that we’re going to start saving, but the actual process of doing that can be challenging. You have to regularly make that transfer into your savings account and it’s easy to just forget about it, whether consciously or not. Instead, set up an automatic savings transfer that pulls a little bit out of your checking account each week and moves it into your savings. Boom – you’re saving money without the effort.

Set up automatic investing plans
You can do the same thing with most investing accounts. Set it up so that a certain amount is withdrawn from your checking account monthly and transferred to your investment account. Essentially, you’re doing dollar cost averaging without even thinking about it and building up your investment in whatever you choose to invest in without the opportunity to overthink.

Change your driving routes
When I commuted to work, I used to drive by a bookstore each day, both ways. I also drove by a coffee shop that had some killer bagels. Unsurprisingly, these two things would cause a lot of impulse buying on my part. The best solution I found was to simply start utilizing a different driving route to work, one that was basically the same length but took me through a residential neighborhood and near a football stadium instead of the commercial district. The impulsive temptation to stop more or less went away – a passive barrier.

Put your savings in a remote bank
Many people find success saving, but when that savings has built up to a good number, they give into temptation and spend it on a big splurge instead of holding onto it for emergencies. Often, this is made easy by having the money in a local bank, where you can easily access it via a quick stop at the bank. If you put your savings in a more remote bank, it becomes harder to just withdraw it on a whim and, often, you have to think about that withdrawal, talking yourself out of it.

Put your retirement savings in a retirement account
If you’re saving for retirement, don’t put it in a savings account or an ordinary investing account. Put it in a Roth IRA, where you get some tax benefits from saving for retirement and can face some stiff penalties if you withdraw it early or use it for other things. These penalties create a real passive barrier against misuse of retirement savings.

Put your education savings in an education account
You can do the same thing with education savings. Instead of just saving money in an ordinary savings account, put that money in a 529 and let the money build there. As with the Roth IRA, there are extra benefits if you use it the right way and penalties if you use it in another way, thus encouraging you to leave it alone and use it for education.

Leave your wallet in the glove box
If you’re stopping at a store where you often give into temptations, just put your wallet in the glove compartment before you go in. This way, you don’t have cash or credit handy when an impulse comes up – you have to go to all the effort of going out to your car, getting yoru wallet, and going back into the store. That’s a lot of effort, especially for an impulse buy, and it can be just enough to convince you not to do it.

Eliminate consumption habits
A final tactic was alluded to in the introduction: if you have consumption habits, like drugs or alcohol or smoking, putting those consumptives in a hard-to-access place makes it a bit more difficult to actually use them. The less you use them, the less money goes down the tubes into buying the materials for your consumption. So, put the alcohol in the attic. Put the cigarettes in the rafters. Flush the drugs down the toilet. Make it hard for you to use them again.

Passive barriers have another benefit, too: they eventually create a new “channel” for your normal behavior. Soon, you’ll find that things like not giving into impulses when you’re in a store or not consuming expensive drinks becomes the normal in your life – and your wallet will thank you.

The post Some Thoughts on Passive Personal Finance Barriers appeared first on The Simple Dollar.

Every week, especially on the way home, I’m tempted to stop. I see the game shop coming up on the right and I get an impulse to stop there. I see the bookstore a little bit later on the left and I get an impulse to stop there.

Yet, almost always, I resist.

Five years ago, I would have stopped, almost every time. I would have went into the game shop, thought about my friends, and picked up a new game to play with them (even though I have quite a few already). I would have stopped at the bookstore and picked up a few new books to read (even though I have a book backlog right now).

Today, at most, I’ll stop once every two months at one or the other of the shops, and even then, rarely do I walk out of the store with an item. If I do buy at such stores, I usually walk in the door knowing exactly what I’m looking for and walk out the door with just that item.

What caused this (hugely financially beneficial) change? Aside from the trite answer of “I just changed my perspective on life,” I found that a handful of tactics really facilitated this change.

Avoid impulsive moments
For me, the best immediate move to make was to simply get myself away from impulsive moments. I started driving a different route to work. I avoided social activities that revolved around buying stuff. I started even re-evaluating my hobbies in order to seek out ones that didn’t encourage impulsive buying (like walking in the woods, for example). The biggest reason for doing this was to simply break the cycle of impulsive buying.

Reflect (at length) on the times when you give into your impulses
If you do discover that you’ve given into an impulse, spend some time thinking about that event and why it happened. Why did you spend that money? Are you really happy with that purchase? What can you do to make sure it doesn’t happen again? You don’t need to beat yourself up over it, but you will find great reward in thinking about the “why” of the matter, as it will lead you towards not repeating the mistake.

Minimize your stress
When you’re stressed, you’re more impulsive. I certainly observe this in my own life – when I feel a lot of pressure and stress, I usually just seek immediate ways to relieve it, even if it’s not a good long-term choice. A new game or book feels good, so I’ll sometimes fall right into that. Thus, it’s useful to seek out ways to reduce the amount of stress in your life. I meditate, pray, play games, read, and play with my children – all of these help me de-stress.

Be accountable to someone else
This is particularly easy if you’re married. The way we do it is by having completely open bills – credit card statements, bank statements, and other such things are reviewed by both of us. Because of this, it’s impossible to “hide” things – we have to be fully honest with each other. If you have a spouse, I highly recommend this. Of course, if you don’t have such a partner, you may have more difficulty doing this – a trusted friend, perhaps.

Allow yourself some impulsiveness – but keep boundaries on it from the start
My wife and I each have some leniency when it comes to impulsive buys. We essentially each have an “allowance” with which we can each buy whatever we’d like. Often, I’ll buy a game or a book – my wife usually buys a book. This “allowance” often gives us just the freedom we need to not have a sense of being deprived while also keeping very good control over our personal finances.

Use the ten second rule and the thirty day rule
The “ten second rule” basically means that you should spend ten seconds thinking about any purchase you’re about to make before making it. This helps you to reflect on potential impulse purchases and often put them directly back on the shelf. The “thirty day rule” means that you should spend thirty days before buying any item that costs more than a certain threshold – say, $25. This prevents you from drowning yourself on an expensive impulse buy.

What’s your impulse?
Most of us have impulses that work in opposition to our financial goals. We buy gum or a bottle of soda at the checkout. We pick up a DVD. We buy some new clothes. We purchase a new gadget or a new book. Most of the time, these decisions are heavily impulsive – done on the spur of the moment – and we often feel bad about them later, particularly when we find we’re not using them much and now we’re facing a bill that we can’t easily handle.

Breaking free of such impulses can have a very large and dramatic effect on your finances. It becomes easier to budget and plan ahead. You suddenly have more resources each month with which you can save, pay off debts, or invest for the future. Best of all, you find that you value the things that you do buy a lot more than you used to.

Impulse control is an essential tool for personal finance success.

The post Impulse Control appeared first on The Simple Dollar.

Last week, I visited a local bookstore. As I’ve mentioned many times, bookstores are one of my biggest weak spots. I can easily go into a bookstore and find myself picking up two or three interesting books before I’ve even really thought about it.

My usual line of defense against doing that is to simply limit my visits to bookstores. I’ve stopped going to the local bookstore with any degree of frequency and only visit them when I need a book on a specific topic, which is why I went there that day. (Are you ready for this? I was looking for a book about knitting.) However, that “reason” never seems to stop me from browsing the shelves, finding a book or two I “need” (meaning I don’t really need it), and buying it anyway.

Before I entered the store this time, though, I tried something different.

I sat in my car for a moment and focused on picturing myself walking out of the bookstore with only a book on knitting. I tried to imagine it in as much detail as I could, picturing the cover of the book and my otherwise empty hands, my pace out of the store, my sense of happiness in not buying anything extra that I didn’t need.

Then I stepped out of the car, went inside, and did just that.

The most interesting part is that I didn’t even consider buying anything extra while I was in there. Instead, I just had a strong, almost overwhelming sense that I was just going to pick up a knitting book, buy it, and walk out the door – and that’s exactly what I did.

Since then, I’ve been using outcome visioning with success (of varying degrees) in other aspects of life. I’ve visualized myself completing an article that seemed really challenging (it worked well). I’ve visualized myself cleaning out the garage (started with enthusiasm, but trailed off after kid distraction). I’ve visualized myself paying bills (worked very well). I’ve visualized myself cleaning out all of the basement closets (started well, got tired and went to bed).

What I’ve found is that, at least for me, outcome visioning works really well for small things – tasks that can be completed in two hours or less. If I use it on larger tasks than that – like ones that have to be broken down into multiple sessions – it can still work, but I usually need to envision the outcome again before I start up on a later session.

Another element that is useful for success at this is focusing on envisioning things that are easy to mentally picture. It’s hard to envision things like “being debt free” or “feeling good about myself.” Instead, focus on tangible things that lead to the outcome you want. Instead of focusing on “being debt free,” focus on specific acts of frugality that you’re not used to and let the outcome from that flow towards your goal. Instead of focusing on “feeling good about myself,” focus on an activity that will cause that good feeling – like exercise.

Also, never forget that visualization is a mental aid, not a substitute It doesn’t matter how bad you want it or how much you visualize it, you still have to pick up your feet and do it.

Give it a shot this week on something small that you know you’ll struggle with a bit, then move in full steam ahead. You’ll probaby be surprised how much it helps.

The post Outcome Visioning and Personal Finance appeared first on The Simple Dollar.

Our brains are incredibly complex pieces of meat. Just like other parts of their body, they can break down and not work quite right. Yet, society often treats ailments of the mind as something either not to be spoken of or something to be looked at as an intense personal flaw.

Yet, just like any other medical ailment, the cause is often out of the person’s control.

I have battled depression on and off for years. I often convince myself that I am a failure at writing (or whatever else I’m doing) and I then convince myself not to do it any more. I am a ridiculously tough critic on myself and I often turn combative about the work that I do produce, because I often think that if the stuff I create after all of this effort still isn’t good, I must truly be a failure. There are times when I can write tons and tons of words. There are other times when I simply can’t make myself write. That’s depression at work, my friends.

A few stories from baseball along these same lines:

Kansas City Royals kid pitching sensation Zack Greinke started last season 5-0 with a 0.50 ERA (not a misprint) and 44 K’s, and he went on to win the Cy Young [award given to the best two pitchers in baseball]. Just four seasons ago, depression and social anxiety nearly caused him to quit baseball. A sports psychologist and anti-depressants helped him recover, as did the Royals. “We’ve been able to create an environment that has clear direction and a consistent way of doing things where Zack feels comfortable,” GM Dayton Moore told USA Today.

In 2000, St. Louis Cardinals pitcher Rick Ankiel, then just 21 years old, was unexpectedly thrust into starting Game 1 of the NL Division Series against future Hall of Famer Greg Maddux and the Atlanta Braves. After two solid innings, Ankiel cracked, walking four hitters in the third. More critically, he threw five wild pitches in the third inning alone — becoming the first major leaguer to do that in more than a century. He later joked about it, but he never pitched well again.

One can find thousands of stories from other fields, but baseball alone, as a singular example, has a mountain of them.

Here are some sure signs that mental health may be standing in the way of your success.

You experience a loss of desire to do things that once filled you with passion. Yes, people have changing interests over time, but if you find yourself walking away from many of the things you used to love and instead spending time alone or involved in sedentary activties, that’s often a sign of a mental health concern.

You find it difficult to do the routine things in your life. If you were once a good housekeeper and find yourself not keeping house, that’s a sign. If you’ve started to allow your personal hygiene to slack off, that’s another sign. If you eat nothing but convenience foods, that’s yet another sign.

Your thoughts are filled with negativity toward yourself. Most people are hard wired to think of themselves in a positive fashion, not a negative one. If you continually think negative thoughts about yourself and the things that you do, you might want to take note of it and do something about it.

You drift away from lots of existing relationships at once. If you find yourself suddenly avoiding people and spending a lot of time alone because you don’t want to face them, that’s another potential cause for concern.

Your finances, once solid, are spiraling out of control. When people feel their happiness slipping away, they’ll often throw whatever they can at the problem – and in many cases, this takes the form of unnecessary spending.

All of these are possible signs of a mental health concern. All of these are also things that can have a severe detrimental effect on your level of personal, professional, and financial success.

At the same time, here are some things you can do to improve your mental health state.

Go outside. This is the first step anyone should take. Instead of sitting inside, sit outside on the front step or on your balcony. Breathe in the fresh air. Read outside. Most importantly, get a little sunshine. Sunshine on your skin produces vitamin D, of which many people are somewhat deficient. Vitamin D has profound effects on the brain and adequate amounts of vitamin D are almost always a net positive.

Whenever I begin to feel seriously down, I usually go outside for a while, if nothing else. It helps more consistently than any medicine under the sun, at least for me.

Get some exercise. Even if it’s something as simple as taking a walk around the block, getting a bit of exercise can always be a help. Exercise not only alters your metabolism, it also causes your body to release endorphins which trigger positive feelings.

Eat a healthier diet. What you put into your body makes a huge difference in how you feel. Try eating some very healthy foods as part of your routine. Eat some fruit for breakfast and a spinach salad for lunch for a few days and see what happens.

Seek out new friends. One’s mood can be seriously affected by the people around us. If your friends are making you feel worse about yourself, seek out new friends. Look for other social opportunities, often in a place very different than where you usually go. Try something completely different. The best place to start is by doing something that seems intriguing to you, but your friends would ridicule you for it.

Talk to your doctor. Medical help can be a powerful course of action if the above techniques do not help you get to a better place. If you sincerely try the above tactics and do not find any success, seek the advice of your most trusted doctor.

Most importantly, don’t be ashamed. You’re not alone in feeling this way. You’re never alone unless you choose to be.

The post When Your Mental Health Keeps You from Success appeared first on The Simple Dollar.

I’ve heard this question (or variations on it) many times. I have a very simple answer to it.

Whenever you buy anything, ask yourself why five times.

That seems really off the wall at first glance, but I firmly believe that no single piece of advice can match it in terms of getting your money under control.

I’ll show you what I mean through the lens of three purchases I considered recently.

I have about $1,000 saved up for a big personal purchase. I had been considering buying an iPad with it, even before the Apple announcement in January. I held one in my hands a couple days ago and considered it.
Why do you want an iPad? It’s an impressive gadget to hold in your hands. I can see myself using it and enjoying it.
Why would you use it? I can surf the web on it and read books on it and periodicals, too.
Why not just use your laptop? This is more portable.
Why not just use your iPod Touch? …
Why not just read a paperback? …

And, boom, my argument for buying an iPad goes down the chute. Sure, I can afford it, but why? It doesn’t fulfill a need in my life that isn’t already fulfilled by something else, or at least not in a compelling enough way to pay hundreds for it. Yes, I’ll probably buy a tablet computer someday, but not yet. It doesn’t actually fiil any sort of need.

I allow myself $30 a month to spend on books. I was in the bookstore recently, considering whether to pick up a copy of a novel I’ve been looking forward to for a long while.
Why do you want this novel instead of the books you already have? It offers a compelling story, but I do already have a few to read.
Why not just wait until it’s on sale or in paperback? I want to read it now!
Why not just ask for it on PaperBackSwap? It’ll take some time to get it there because it’s such a new release.
Why not just request it at the library? I could do that… it might take a few weeks.
Why not see if one of your friends has picked it up and swap with them when they finish? Even if the library doesn’t have it, one of them might.

And, boom, I’ve got several avenues for reading the book without spending the money. This keeps me from buying a lot of books because my actual need (to read) is fulfilled in other ways for much less cost.

Another example: I’m considering buying a one pound small wheel of Maytag blue cheese at the store.
Why are you buying this cheese? I want to make some good blue cheese burgers and I want some to sprinkle on my salad.
Why are you buying a pound for that? It’s cheaper per ounce.
Why would you let the eight or so ounces you won’t use go to waste? I, uh, wont?
Why not get feta for your salad because it’s cheaper and tastes more appropriate? Hmm… that seems reasonable.
Why not just get a four ounce piece of the blue cheese? …

And there you have it. Instead of buying the one pound chunk, I bought a four ounce chunk and some feta.

In each example, I came up with a result that either made me realize I didn’t really need the item at all or pushed me to another purchase that met my needs for a much lower cost.

The five whys push me there every time. The simple process of thinking through a purchase almost always leads me to a better solution that my first impulse points me to. This saves me money and prevents me from making impulsive, wasteful buys. Instead, I find I have plenty of money left for the things that really do matter in my life.

The post Why Do You Buy? appeared first on The Simple Dollar.

What is a wedding supposed to cost?
What is an automobile supposed to cost?
What is a home supposed to cost?
What is a three week vacation for a family of four supposed to cost?

For each of these questions, you came up with a number of some sort. That number is based on your own life experience coupled with what you’ve observed others doing and also the influence that media has had on you. That number, in other words, is your “mental anchor” for what that item should cost – and it’s often the basis of judging whether something is reasonable in price or not.

Of course, anyone who has read The Simple Dollar for long probably recognizes one thing immediately: that anchor price is nothing more than a sticker on the box. It doesn’t represent what you’d ever actually need to or have to pay.

I’ll show you what I mean.

According to CostofWedding.com, the average American couple spends $20,398 on their wedding, and that’s not too far from the mental anchor of the cost of a wedding averaged across all economic levels.

The problem, of course, appears when people begin to truly use the $20,000 figure as a mental anchor for their wedding. “We have to spend that much in order to have even an ‘average’ wedding?” people ask themselves. Then, in order to have their day be ‘special’ or ‘exceptional,’ they spend an amount that’s far over the top, putting them into debt for quite a while.

I’ve witnessed at least two couples do this with their wedding – they invent a mental anchor of what it should cost, chase that mental anchor, and wind up with a gratuitously expensive wedding that ceases to actually make either the bride or groom all that happy in the end.

That same experience repeats itself with cars. After all, there are an awful lot of people out there buying new luxury cars, aren’t there? They have an anchor in their head of what the average is and they must beat that average.

Here’s a novel idea. Forget what your mind is telling you about what things should cost.

Instead, figure out what you actually need (or want) and then strive to minimize the price on that.

So, for example, if you’re thinking of getting married, simply sit down and make a list describing what your wedding will be like. Revise it a bit and make sure both of you are happy with the list. From there, find the best deals you can on each item on the list.

Voila! You’ve created a wedding you’re both happy with and you’re not comparing it to the idea of what a wedding (or wedding cost) should be. Why? Because it doesn’t matter what a wedding “should” cost. It only matters what your wedding costs, and you should strive to maximize the value of your dollar while having the wedding you both want.

The value of something isn’t expressed in dollars. Everything has a cost, but that doesn’t represent the value at all. The value is what you get out of it. Does it make you happy? Does it meet your needs? Those are the things that matter, not matching what someone else is doing.

If you spend all of your time comparing the major things in your life to others based on their cost or their perceived value, you’re saying that what others want is more important to you than what you want. Never let any important choice in your life be governed by what others want.

This is your life. Live it the way you want. Ignore what everyone else says you must have and says you must spend on it. This is about you, not them.

The post The Mythology of Spending and Mental Anchors appeared first on The Simple Dollar.

Five years ago, I would have rushed to the bookstore and picked up these titles in hardback. I would have been completely impatient to read them, so I would have just thrown down the $20 or so, picked up the hardback, and headed home with it. About twenty percent of the time, I would have read the book once, stuck it back on a shelf somewhere, and ignored it as it gathered dust. The other eighty percent of the time, I wouldn’t even have read it before it started gathering dust on the shelf.

Why did I do this? There were several factors – I didn’t have the time I wanted to have to read, for one – but the biggest one was what I like to call the “cult of the new.”

Simply put, the “cult of the new” is the willingness to pay a premium price for whatever the newest releases are. When something new comes out, you’re inordinately focused on it because it’s new. It pops up again and again.

If a new restaurant opens, you have to visit it even if the reviews are mediocre.
If a new book or album comes out, you have to pick it up.
If a new car is released, you can’t help but swing by the dealership to scope it out.

It’s a very expensive routine. You constantly overpay for things in terms of their actual quality – instead, you pay a premium for the “new.” You pay new release prices for DVDs and for film tickets. You pay hardcover prices for books. And, in the end, you get far less for your dollar – or you dig yourself into a financial hole.

Some people do it with some level of social justification – they need to keep up with (or keep ahead of) their friends. To them, I say that if your friends value you only because of what’s on your shelves or where you ate last night, there’s not much depth to the friendship.

Others do it to feel good about themselves, so that they feel current. This is perhaps even more dangerous, because you’re tying your self-esteem and happiness to material things and short-term experiences. Without a constant influx of these things, you begin to feel bad about yourself. True self-worth comes from within, not from external things, and it took me a very long (and painful) time to learn that lesson.

It took me years to break out of the “cult of the new.” Here are some of the things that really helped me.

I adopted a firm rule about buying such new things – I don’t. Excepting gifts for others, I simply don’t buy new releases, period. I don’t pick up books for myself until they’re in paperback. If I do happen to read a hardback I like enough to keep around for multiple readings, I still wait until the paperback comes out.

If I truly must read something that’s brand new, I visit the library. I’m a very heavy user of our local library’s book reservation system. Yes, sometimes I don’t get hot new releases in the first month they’re out. However, I do get them eventually and, quite often, I get them faster than I expect (because other readers check them out for much shorter periods than expected). You can do the same thing with movies – sign up early to rent a new release from Netflix, for example.

I also swap frequently with my friends. If I do receive a book as a gift that I think a friend will like, I loan it out. Similarly, they’ll loan their new releases to me. This way, a new release given to me as a gift is often like two or three of them, since I have friends with which I share interests and can trust in terms of swapping books. One’s social network, if filled with compatible, good people, can be a very valuable resource.

I learned to love exploring the archives. If I find an author I like, for example, it’s much cheaper to dig through his or her older books than it is to charge out and buy the new releases. Take Richard Russo, an author I discoverd a few years ago (and subsequently hooked my mother on). Rather than rushing out and buying myself his newest work in hardback, I used PaperBackSwap to read a multitude of his older novels. The cost for these older books was trivial, but I was still able to deeply and fully enjoy his writing without paying that “new” premium. I explored Douglas Coupland in a very similar fashion.

When I finish a book (or a game, or a movie…), I first turn to my own shelves. I don’t insist on finding the thing I want to read/play/listen to already on my shelf, but quite often I find it anyway. I’ll spy a book that just speaks out to me, saying “read me…” in its own special way. So I pick it up and I suddenly have free entertaiment that I’m deeply enjoying.

Some set of these techniques work no matter which form of the new you’re chasing, whether it’s restaurants or trading cards. Whatever it is, if you can seek out other avenues for your passion than the shiny new thing, you’ll almost always receive a big thank you from your wallet.

The post The Cult of the New appeared first on The Simple Dollar.

I took the game home, played it for an hour, and hated it. I mean, hated it. For some reason, the designers of the game made the choice to give all players infinite lives, which essentially meant that you could never lose. There was no real point to the game.

Even though it was obvious I had picked up a very disappointing game, I tried to make myself believe that it was a good choice. I would make regular attempts to play it. I would coerce my friends into playing it until they begged to play anything else. I even went so far as to play the other game I considered (Castlevania II) at my cousin’s house and tell myself that the game was awful, even though I actually liked that one quite a bit.

Although this is a very extreme example, we all do some form of this at various points in our lives. We buy something. It’s not up to the standards we expected at all. Yet, we want to believe that we didn’t waste our resources, so we try to rationalize the purchase.

I have three observations about post-purchase rationalization from my own life.

It happens much more often with impulse buys than with carefully-planned purchases. Let’s roll back to that video game analogy, above. My game purchase was pretty impulsive. I didn’t have access to a wide range of reviews of the two games. In fact, I mostly made the purchase on the spur of the moment. My choice resulted from remembering a fun afternoon at an arcade with my cousin in which we played several games of Rampage together. Today, I make most of my purchases in a vastly different way. I usually research the choices into oblivion. I read reviews. I ask myself if I really need this item and, if I do, whether or not this particular item gives me adequate bang for my buck. That doesn’t mean I’m immune to impulse buys. They strike me still with some regularity, most often in a bookstore or in a grocery store. Sometimes I’ll be happy with my choice; at other times, I’ll read the book or consume the item and feel pretty disappointed.

I often try to forget about those poor purchases. Rather than thinking about them, I usually try to sweep them under the rug. I’ll toss out the remainder of an awful food item just to get it out of my eye. I’ll quickly trade away a disappointing book. My method for “rationalization” of those purchases often comes in the form of simply getting them out of my sight – and thus, often, out of my mind.

When I can’t get rid of the purchase, I usually try to “break” it. I don’t mean that I attempt to smash the item or anything. Instead, I try to use it heavily to force the item to either prove itself or to fail in some distinctive way so that I have a reason to replace it. Think kitchen items, for example; if I buy a knife that doesn’t “click,” I’ll try using it all the time until I discover a true use for it or I discover so many flaws that it’s replace-worthy. In its own way, this is a justification mechanism, as I’m forcing myself to either justify the purchase or justify a replacement for it.

These three observations lead straight to a few solutions to keep post-purchase rationalization from ever becoming an issue.

First, simply curb those impulse buys. Instead, write down the item and research it a bit. If you still want it and can still afford it, buy it later on. Walk away from it, though, if you don’t know anything about it other than what’s on the shiny packaging.

Second, if an item doesn’t work for you, admit it. Don’t try to beat yourself up over it, or stubbornly use it while making a mess of everything else (which can often happen with a kitchen implement, for example). If you made a mistake, admit that you made a mistake. Then, ask yourself how to deal with that mistake.

Finally, once you recognize the mistake, focus on a good solution for it. Can you trade away the item for something you actually will use? Does the item still have resale value? Turn that mistake into something more positive by quickly turning it into some form of a gain in your life. For example, if I read a book I don’t like, I almost always trade it away quickly on PaperBackSwap and then get a book that I will enjoy. This way, I at least wind up getting some value for the money I spent.

Don’t rationalize your mistakes. Instead, face them and look for ways to improve on your choices. A mistake is an opportunity to improve yourself.

The post Some Thoughts on Post-Purchase Rationalization appeared first on The Simple Dollar.

Over the last few years, I’ve come to believe that the biggest key to personal finance success is controlling your own psychology and impulses.

Our entire lives are filled with quick decisions we must constantly make – and, for the most part, we’re good at it. We commute to work without getting in an accident. We make constant little decisions at work – and at home, too. We’re able to effectively take several pieces of information, combine them together, and make a pretty good choice based on the result – and we do it over and over again.

Unfortunately, that same ability often doesn’t serve us well at all when it comes to personal finance. The ultra-quick decision making process that leads us to making great little choices in everyday life often leads us to making disastrous financial decisions. Very rarely do snap decisions work out well in the financial world.

This concept is the central focus of Snap Judgment by David Adler. He makes a two-fold argument. First, such snap decisions fail us financially and, if we’re able to get control over them, we’re much more likely to find financial success. Second, understanding how people make such snap decisions can help us to predict and prepare for the choices that other people will make, pushing us to further success.

Sound interesting? Let’s dig in.

I: The Psychology of Financial Decisions
The basic rule of thumb for success in any financial arena is “buy low and sell high.” It rings true in everything from stock investing to grocery shopping. The problem is that most of our normal financial cues tell us to do virtually anything but that. For example, we often believe there must be value to be found if everyone else is buying something, but quite often that means that it’s the opposite of a bargain – the price is overinflated.

Similarly, we are often wired to overlook what we view to be small amounts of risk – if we didn’t, we’d never leave our house in the morning. However, when we apply the same philosophy to investing, we overlook those seemingly small risks and chase what looks like the biggest returns – and then we get bitten by those risks. That’s why so many people got caught losing big chunks of their retirement in 2008?

II: The Track, the Stock Market, and Other Types of Gambling
Our brains are wired to see patterns in our lives, from traffic to grocery shopping to financial markets. Most of the time, when we act based on how we think things will go based on those patterns, we guess right.

The problem is that the stock market and most forms of gambling present false patterns to us, ones that have nothing to do with what happens next. People stare at charts and sit at slot machines because our minds are convinced there’s a pattern in the chaos and that a big winner is about to emerge. Quite often, though, it’s not coming down the pipe.

III: Personal Decisions, Personal Safety, Personal Finance, and Health Choices
Another method in which people falsely assess risk is in our own health and mortality. Many, many people don’t have life insurance because they simply see the risk of their own death as being too minute to really concern themselves with, whether in a conscious or subconscious way. For the same reason, many people don’t bother with annual checkups at the doctor.

In each case, the concern isn’t the chance of the risk, but the severity of the event when risk comes to call. We assess the chances themselves quite well, but we’re poor at assessing the consequences of the bad event actually occuring and whether or not a small cost now is worth covering that big bill later on.

The latter three sections of the book are much shorter and focus on very narrow issues, mostly ones that have really popped up as a result of the 2008 financial crisis.

IV: CEO Behavior
CEOs rise to the top of the corporate ladder by taking risks and having those risks pay off. That’s how a future CEO stands out from the pack – they stick their neck out and succeed. When they get to the top, they often have huge confidence in their abilities, whether it’s warranted (Jack Welch) or not (Bob Nardelli). Often, one sign that a company is either going to succeed wildly or utterly fail is in the behavior of the CEO: are they full of their own hubris? Do they hold onto stock options too long? Good signs include a laserlike focus on their company. Bad signs include self-promotion, like writing books and going on book tours.

V: Psychology and the Credit Crisis
Investment bubbles happen for the reasons outlined above: people see others rushing in and making good money and decide to rush in themselves. Inevitably, though, any market eventually runs out of buyers, at which point the bubble pops and people lose big. The opposite is also true – think of someone shouting “fire” in a theater or a bank run. Quite often, that kind of trampling panic can cause far more damage than is warranted in the situation.

VI: Debiasing
How can you avoid all of this stuff? First of all, slow down. Very few financial decisions have to be made in a “snap” context. Second, communicate. Talk it over with others. Have a “money buddy” or even a group of people to talk decisions through with. Third, cover your risks. Don’t invest in stocks unless you can afford the losses and have insurance unless you’ll be fine without it.

Is Snap Judgment Worth Reading?
Snap Judgment is a thorough and interesting review of how psychology affects investment and financial choices. It’s written approachably and thoughtfully and does a good job of covering the 2008 crisis in the latter sections of the book.

The only real drawback with the book is that the topic area has been covered by a lot of other books, many of which are very, very similar.

If you’ve read a book on financial psychology, Snap Judgment probably isn’t a necessary read, but if you’ve never read one, you ought to, and Snap Judgment is a pretty fine place to start.

The post Review: Snap Judgment appeared first on The Simple Dollar.

During various years, within a week or two on either side of Christmas, my grandfather (who I cherished) died of cancer, a great uncle that I was very close to also died of cancer, and one of my cousins who was exactly the same age as me committed suicide.

The Christmas season is thus bittersweet for me. There are so many positive feelings and memories I have about this season, but the memories of the final days of loved ones and of funerals and of people I dearly miss also fill the season. There are a few Christmas carols that, when I first hear them during the Christmas season, whack me in the stomach like a two by four.

Because of all of this, I often get really obsessive about trying to ensure that the Christmas season is really great for all of those around me – my parents, my children, my wife. The emotional mix of the Christmas season, for me, often results in me making spending choices that I wouldn’t otherwise make. I’ll choose wonderfully frugal gifts for some people, then I’ll spend far too much on a gift for someone else.

By the time Christmas finally rolls around, I almost feel relieved that it’s all over for another year. I also feel a lot of guilt and shame because I feel as though I spent far too much on gifts for others during the season. By February, I’ve resolved to not do it again this year.

Then November rolls around and the first snow of the year, for some reason, always makes me think of my grandfather. Then I’ll hear Hark! The Herald Angels Sing and the same cycle of feelings always returns.

I think many of us share a lot of conflicting feelings about the holiday season. It’s often an emotionally charged time of the year, with relatives coming together and sometimes exposing very raw nerves. It’s often also connected with a lot of memories of childhood and of people long since past. Add on top of that the fact that December contains the shortest amount of daylight of any month of the year (contributing to a bit of the winter blues in everyone) and it can be a very challenging mix.

For all of us, there are lots of emotional triggers in life (mine just happens to be Christmas). Emotions can flood out from an innocent phrase, the thought of a long lost friend, or any number of other things.

The trick is to remember that when your emotions are running rampant, it is very easy to make very poor choices with your money.

Over the last few years, I’ve really come to recognize how challenging the Christmas season can be for me. The biggest step I’ve taken to keep my finances under control this month is to simply do as much Christmas shopping as I can before the month even begins.

In other words, I do everything I can to separate my wallet from what I know will be an emotional surge for me. I minimize the reasons I might possibly have to go shopping for gifts – and for other things – as the Christmas season approaches, lest I wind up with a pile of poor spending choices brought about by a psychological crest.

What things are hidden in your psychology that cause you to make poor choices? Is it certain people? Is it a certain time of the year? Is it a certain thing? Whatever it is, there are many rewards – financial and otherwise – from stepping back, recognizing that you’re affected strongly by this thing, and doing everything you can to keep your money as far away from the situation as you possibly can.

Yes, it will still be a merry Christmas for me. The light in my children’s eyes helps quite a lot, and it’s a light that I’ve come to learn has little to do with presents or things. It has to do with a dad that lets them pile on in the living room.

The post Spending Choices and Deeper Psychology appeared first on The Simple Dollar.

At first, the construction somewhat annoyed me. I can hear the construction noises throughout the day as I’m working and they, at times, can be a mild distraction. The workers are also building something that is going to sit right in my view out of my office window.

What are they building, you ask? A house. A very nice house, in fact.

A few days ago, while I was working on an article, I turned my head and watched the construction work for a bit when I suddenly realized something. The house they were building is not too dis-similar from the house I would love to build someday. It’s fairly isolated with plenty of yard space but also with access to the forest. If I understand the floor plan correctly, it has nice, large bedrooms and a nice kitchen, which are the two features I most like in homes.

Since then, whenever I hear that noise, it actually pushes me a little bit. That noise, instead of being an annoyance, is a reminder of my big goals in life. That noise tells me to keep doing what I’m doing, to push forward to big things.

It has been extremely useful to have such a constant motivator around me. It keeps my nose to the grindstone all day long. Whenever I look out the window, I see the work. Whenever I pause for a minute, the noise from the work comes in loud and clear.

In fact, I’m going to dearly miss them when they go away. I’m considering setting up a series of sound files and some desktop wallpaper on my computer to remind me of them when they leave.

This brings me around to my central point: what’s your motivator?

Personal finance success is often borne out of specific, concrete long term goals. For me right now, my biggest goal is a nice home in the country.

Quite often, personal finance mistakes come about when we lose sight of those goals. We place short term wants and desires ahead of these big goals or we simply don’t even think of them when the moment of decision comes.

It’s in those moments that a reminder can really help. For example, if I’m sitting in my office and I get an email from a reader about some great deal they found, I might be tempted to take advantage of it. But all I have to do is open my ears a little bit and that construction noise comes in. That reminds me of my big long-term goal and makes me rethink my purchase.

What’s your motivation? What can you surround yourself with that will remind you of your goals? If you find a visual or audio reminder, here are some places you can put it:
+ on your refrigerator
+ taped to the bottom of the rear-view mirror in your car
+ as your desktop wallpaper
+ as a regular sound on your computer
+ in your wallet, wrapped around your credit card
+ on your bedside table

The key thing is to push your long-term goals so deeply into your thoughts that it becomes wholly natural to consider them before you make any choices. When you do that, you’ll be on the fast track to success.

The post What’s Your Motivation? appeared first on The Simple Dollar.

What is the 40-30-30 rule? Simply put, it’s an argument that when you prepare for anything in life, only 40% of the preparation is physical – the rest is mental. Thirty percent of preparation is technical skill and experience, and the second thirty percent is the willingness to take risks.

This “rule” comes up again and again in all different areas of life. Here are several examples from my own life where I’ve seen it.

When I’m playing a game I’ve played a lot of times before, I have an intuition as to what move to make next, built from years and years of experience (the 30% that comes from technical skill and experience). However, I also find that it’s very easy to just keep using the same strategy over and over again because I’ve somehow come to the conclusion that it’s the best one. So, if I combine that technical skill and experience with a risky new strategy I’ve devised (the other 30%), I might lose – but I might also devise a way of playing that’s even better.

With investing, I have a good understanding of my own risk tolerance, an understanding built up over a long period of time (the 30% that comes from experience). Howver, I also know that if I don’t push against my risk tolerance a bit and look at new investment opportunities from time to time (the other 30%, risk), I’ll likely miss out on great opportunities.

I also see it in my career, both now and when I worked for a large organization. I would often have a well-worn daily routine that worked and got the things done that I needed to get done (the 30% that comes from experience), but if I really want to excel, I sometimes have to step outside the box a little (the risk-based 30%).

The 40/30/30 rule really does provide a great framework for success, no matter what you do.

Do something worthwhile (the first 40%) means that you’re willing to get up off the couch and do something. Maybe it’s getting ahead in a career. Maybe it’s getting into a new hobby. Maybe it’s simply getting a grip on your investments. 40% of the journey is simply trying.

Keep at it (the next 30%) is simply encouragement to not let a new initiative slide, because the more you work at it, the easier it becomes. Even more important, the more you work at it, the more the basic skills that make up the task begin to become natural to you.

Take risks (the final 30%) simply means to not do things the same way every single time. When you’ve become skilled at something, it’s easy to become wedded to the same routine. Never stop looking at what you do and trying out alternate paths. Not only does this grow your skills (making your basic routine even better), it also helps you to uncover new ways of doing things.

Great… so how do you do this? How can you apply the 40/30/30 rule in your life? The best first step is to figure out the area of your life where you want to improve. Do you want to get out of debt? Do you want to improve your skill at a musical instrument? Do you want to get a promotion at work? Do you want to become a writer?

Once you’ve figured out what you want to do, research it a bit. Figure out what things you’ll need to do to accomplish that goal.

After that, start practicing and building skills. The best way to do that is to start doing the thing you want to master every single day. For me, a thirty day project works well for this. I just commit to doing a certain thing every single day for thirty days (if that’s possible). At the end of it, I’ve usually vastly improved at whatever skill or attribute I was trying to develop.

Quite often, thirty days is enough to establish a positive new routine in your life, so keep it up. Keep doing that thing every day until it becomes truly normal and seemingly effortless.

Then, take a risk. Change what you’re doing a bit. Make it more difficult, or at least different. Explore something new. If you’re taking a walk every day, increase your walking pace a bit and use a stopwatch to slowly trim your time around the block. If you’re trying to break through at work, volunteer for a task that you might have avoided before, like giving a presentation. If you’re playing a game, try a completely different strategy and see how it works. If you’re investing, dig into some new investments that you haven’t looked at before and consider putting some money into them after you’ve studied them.

What you’ll find is that your already-built skill will help carry you through this new challenge and that the rewards of this new risk are great. You end up in better shape, with a better career, with a better gaming experience, and with better investments – or with improvement in anything you’d like to take on in life.

The post The 40/30/30 Rule appeared first on The Simple Dollar.

Three Examples
In order to illustrate this, I thought I’d use three real examples from my own life recently, as I’ve been using “the five whys” more and more lately to uncover the roots of some of the problems in my life.

Example 1: Crunching the Numbers
I usually calculate my net worth in a spreadsheet because I like the layout and the reports, but I don’t update it as often as I might like.

Why? It takes quite a lot of time to dig out all of those numbers.

Why? They’re stored in a lot of different databases and on a lot of different websites, which I have to visit individually to extract the numbers.

As a result, I’ve decided to give Quicken a shot again. In the past, I used Microsoft Money for about a year until I found that I didn’t like the reports it generated – I preferred what I had in my own spreadsheet. Quicken may be able to provide better reports (it looks like it will from the reviews I’ve read) and, even if it doesn’t, it’ll make it easier to retrieve the numbers I want to see. (And, yes, I’ll be posting a review of it in the near future.)

Example 2: Broken Exercise Routine
During the final push to complete my book, I abandoned my regular daily exercise routine because I needed absolutely every spare minute. Since I finished it, I’ve been having difficulty getting back into that exercise routine.

Why? Every morning, I feel fairly pressured to write content for The Simple Dollar instead of exercising.

Why? I have (post-book) writer’s block and my usual protection against it (unpublished posts that I have in reserve) isn’t there any more, because I used many of those in the final push to finish the book and the few days afterward when I simply needed to do something besides write.

Why? I’m lacking the “idea juice” I usually have and without it, my entire daily routine is disrupted.

So, my solution is to find ways to reinvigorate my creativity. Over the last few days, I’ve been spending time on brainstorming exercises, simple writing exercises, and so on, as well as just reading a lot – all of that while avoiding the keyboard. It’s really starting to help. Then, as I get back in the flow, I’ll be able to build up a backlog of articles again, enabling me to feel free to exercise in the mornings.

Example 3: Laundry Backup
We often wind up with a large backup of laundry, then find ourselves doing several loads on a single weekend day.

Why? Our laundry routine doesn’t work.

Why? One big problem is that our laundry room is literally as far as possible in our home from our bedrooms, plus the laundry room is back in the corner near the guest bedroom. Out of sight, out of mind. As a result, we often don’t even think about the laundry until the evening, when we’re just about ready for bed. Then, in the morning rush, we walk right by it.

Why? It’s more convenient to just ignore it in the morning and we’re too tired to deal with it in the evening.

A solution presents itself. Fill up a laundry basket in our bedroom in the evening and place it right in front of the door so that we’ll trip over it in the morning if we don’t deal with it. Then, when we go downstairs in the morning, we carry the basket down and we’re pretty much ready to drop in a load of laundry on our way out the door. I’ve started doing this and it actually really works.

Why It Works: The Path of Least Resistance
In the normal routine of our lives, we almost constantly take the path of least resistance when it comes to choosing what to do. What’s the path of least resistance to get from where we are now to where we want to be? We do this over and over and over again.

The only problem is that when we choose this “path of least resistance,” we often aren’t choosing the best path. If only we would choose to take some extra effort right now to remove some of that resistance, we might find a much more effective path to get where we want to go.

For example, the “path of least resistance” for me to figure out my finances was to use a spreadsheet because Microsoft Money didn’t do what I wanted. Of course, as I found out, the spreadsheet itself had significant resistance, so now I’m trying to use Quicken along with my spreadsheet (and maybe not even with my spreadsheet) to reduce that resistance, making the whole thing much more usable.

Another example: the “path of least resistance” for doing laundry was to just let it build up then do a bunch at once. The only problem was that we essentially would devote an entire day to laundry (usually Saturday was laundry day). I can reduce that big resistance by just filling up a basket before bed (a tiny resistance) and then carrying it down in the morning (another tiny resistance).

When you do the “five whys,” you’ll eventually find your way to the resistances in your life that are keeping you from what you want to be doing. When you dig into those resistances and find ways to break them, you make it much easier to go down the path you want to go down.

Why do you spend so much money each month? You might dig down and find that certain places tempt you, so just by avoiding them, you don’t spend as much. You might find that certain friends convince you to spend more, so focus on spending more time with your other friends.

Why aren’t you succeeding at work? You might dig down and find that it’s because you’re afraid to volunteer for projects, so you might overcome that by simply resolving to take the plunge on the next project that comes through. You might find that the politics of your workplace encourage you to avoid stepping up or that the entire company is poisoned, which might indicate it’s time to move on in your career.

You can use “the five whys” in every aspect of your life. If you spend some time thinking through the problems in your life in this way, you’ll almost always dig down from something that seems insurmountable to something that you can fix. That fix might lead to the big change you want or it might not, but no matter what, it’ll almost always change the dynamics of your life for the better.

The post The Five Whys and the Power of Analyzing Your Life appeared first on The Simple Dollar.

This effect, in which we act “better” when we believe we’re being observed by others, is called the Hawthorne effect, and it’s surprisingly powerful.

It’s easy to see examples of this almost every day in our lives. If we’re out with people we don’t know well and are trying to impress, we’re going to focus intensely on putting our best foot forward. We’ll dress well, attempt to be good conversationalists, and try hard to put positive character traits on display. On the other hand, when we’re home alone watching television, we’ll often put on old raggy comfortable clothes and curl up on the couch without combing our hair or anything like that.

Let’s carry that forward a bit. Let’s say we’re at a store with a friend and that friend is watching us as we make up our mind about whether or not to make a purchase. Simply by observing, that friend has an effect on whether we buy.

I see it even in my own life. If my financially conservative friend John is watching, I’ll tend to not buy the item and walk away. On the other hand, if one of my other heavy-spending friends is watching, I’ll lean more towards buying the item. The observer doesn’t have to actively participate at all in my purchase – simply by being there, they impact my choice.

In short, I tend to lean towards a “best behavior” in the eyes of whoever is observing me. That “best behavior,” though, changes based on who is doing the observing.

Some of you may scoff at this at first glance, but imagine yourself in situations in your life and how your actions and choices in those situations change depending on who is there and who isn’t.

For me, the intriguing part of the Hawthorne effect is how it can reinforce positive behaviors in your life. Just choose to surround yourself with people who reinforce the behaviors you want to exhibit.

So, for example, if I’m going to go do some comparison shopping for Christmas gifts with a friend, I’m far better off choosing to go with John than with other people. Why? John’s mere presence encourages me to dig for values in the gifts that I buy and not just go for the splashy gift, while others, by their mere presence, will encourage me to just go for the “awesome” gift without strong planning or thought.

If I’m trying to break a habit of drinking socially, I’m better off spending social time with friends that don’t drink. Again, just by their powers of observation, I’m more likely to make the appropriate choice. Of course, the reverse is true – if I enjoy drinking socially, I should choosse friends who also enjoy it.

If I want to go the extra mile at work and look like a winner, I should try to get into group projects with people who are really productive – the “stars” of the company – instead of people who just sit around and complain. On the other hand, if I’m just interested in passing the time at work, I should seek out those who are doing the bare minimum.

What kind of person do you want to be? It’s much easier to find the path to where you want to go if the people around you are on that same path. Just by their presence, you’ll innately want to please them with your actions, so you’ll make choices with them that lead you towards your own personal goals.

The Hawthorne effect really works. More and more, I gravitate towards friends and work associates that are the kind of people that I want to be.

The post The Hawthorne Effect and You appeared first on The Simple Dollar.

Keeping score is an easy way for me to know how well I’m doing. It lets me judge, in a very clear way, whether I’m improving and whether I’m making forward progress towards my goals.

For a long time, I was obsessed with keeping score in various aspects of my life against other people. I’d keep score with the various gadgets we had. I’d keep score with who had the best trading card collections. I’d keep score with who had the best-stocked liquor cabinet.

What I found, though, is that keeping score against other people in such ways left me feeling empty. Every day – every hour, even – there was another way to keep score against someone else, and I could never win all the battles or even most of them. Even worse, when I would lay my head on my pillow at night, it was just me. There was no one to keep score against, and even if I had a higher “score” in some aspect of life than others, most of the time I was left unfulfilled by that.

Over time, I began to find a lot of power in keeping my own score.

Net Worth
The primary way I “keep my own score” is by calculating my net worth quite frequently. I use my net worth as a score to judge whether or not I’m making successful, smart moves towards improving my personal finance state. I “win” if my net worth goes up. I “win big” if my net worth goes up by some specific amount each month.

Calculating your net worth is quite easy. Simply make a list of all of your debts and another list of all of your assets. Add up your assets, add up your debts, then subtract your debts from your assets. The resulting number is your net worth.

I calculate my net worth each month. I use a simple spreadsheet to do this – here’s how you can build one exactly like it.

Using Net Worth to “Keep Score”
Each month, when I calculate my net worth, I “keep score” in three different ways.

First, I compare my net worth to the previous month’s net worth. Obviously, I strive to have this go up each month, but during months where there are car repairs and other issues, it doesn’t. If I don’t see a decent increase from month to month – and having calculated this many times, I know what to expect – I’ll start digging for “why” this didn’t happen in order to improve my game.

Second, I compare my net worth to my net worth one year ago. This must be an increase – and hopefully, a sizeable one. I do this mostly to help me realize how far I’ve come over the past year, as it’s often an amazing reminder (particularly when compared to annual income) how our hard work is paying off.

Third, I look at the goals I set at the end of last month. Each month, I set goals for the coming month. Usually, these are “thirty day projects” of some kind, where I’m trying to teach myself a new normal behavior or two. One month, it might be minimizing our grocery bills to teach myself how to get the nutritious foods we need for less. Another month, I might go without spending a single dollar on entertainment. At the end of the month, I’ll reflect on how the goal went and see how it impacted my net worth – it’s usually a positive impact. Even better, I’ve usually picked up a good behavior or two by doing things this way.

Obviously, I also set goals for the next month. I usually pick a “target number” to shoot for – think of it as trying to beat one’s high score at an arcade game. I also usually define a “thirty day project” of some sort – sometimes two – to help me master a good behavior or two that will reflect well on my financial state.

During the month, if I feel like I’m on the verge of making mistakes, I’ll often calculate my net worth just as a quick reminder. It’s much like playing a game and glancing up at the score at the top of the screen – a quick reminder of how well you’re doing and a bit of a push to keep up the good work.

In a nutshell, keeping score is a key part of how I keep my personal finance in balance. It keeps me motivated and focused without causing me to “compete” in areas that are detrimental to my overall goals (like getting into “gadget wars” with friends).

The post How I Use My Net Worth as a Psychological Carrot appeared first on The Simple Dollar.

Add that all together – plus the usual issues with a busy household with two young kids – and I’m feeling the stress. I’ve not had time as of late to exercise with all of the demands on me, either, which is something that really has been useful over the last year for keeping me energetic.

One major thing I’ve noticed is how this has all directly affected my personal choices when it comes to spending. To put it simply, I’ve been more tempted than I have been in a long time to spend money without really thinking about it. In fact, just a few weeks ago, I wrote about one experience along those lines.

I’m not alone in noticing this phenomenon. In this article on MoneyCentral about stress and spending, the author makes the astute point that we often spend to relieve stress in the short term, but it adds up to additional stress in the long term.

I’ll absolutely agree with part of that. Overspending today will unquestionably lead to more stress in the long term. If you spend money today on something purely impulsive, you won’t have money to spend tomorrow on something genuinely important to you. That $30 impulse buy today means you stay in debt for a little longer and pay a little bit more interest along the way.

However, I think there are at least two more connections between stress and spending not addressed in that article that I’ve noticed in my own behavior.

First, when you’re stressed, you’re simply not as mindful as you might otherwise be. Normally, when I’m in a buying situation, I’m pretty mindful of the situation. I recognize the temptations around me and the subtle cues I’m being fed to buy more than I should.

When I’m stressed, though, I’m distracted. Stress is caused by something that’s on your mind, sapping away at your consciousness. When that happens, those subtle buying cues become radically more effective. Instead of rationally looking at the situations you’re in, you look at it with less than your full attention – and those subtle little cues take over.

Second, stress pulls you away from those important to you, and sometimes you overcompensate. While finishing up my manuscript and rushing to make my deadline, I’ve found myself working into the wee small hours of the night many nights. This leaves me exhausted the next morning – and I recognize that I’m not quite as “there” for my children as I normally am in the morning.

Then, when my son, who’s been wonderful through all of this, will innocently turn to me and ask, “Dad… can we go bowling?” or something similar, and that perfectly plays on my desire to do fun things with my children combined directly with my sense that I’ve not been doing quite as well as I have been lately. The end result? I’m far, far more susceptible to saying “Sure!” and going bowling than I would be under less stress.

To put it simply, a higher stress level makes it more likely that you’ll spend unnecessarily. Thus, the reverse is true: if you can reduce your stress level, it’s likely that you’ll also reduce the prevalence of frivolous spending in your life.

Having said that, here are the five stress-reduction techniques that work best for me.

Focus on what’s stressing you. I find that distraction and avoidance usually make me more stressed out. Instead, if I actually focus on what’s stressing me and attempt to come up with a real solution for the problem, I not only feel better in the short term, but I also contribute to a better long-term solution as well.

Talk about what’s stressing you. My wife is a wonderful listener. Find someone who will listen to you rant and rail about what’s bothering you. It’s cathartic.

Meditate. Spending twenty minutes praying or meditating deeply can really clear your mind of a lot of detritus and put you in a much calmer place. I find more rest in meditating for twenty minutes than in sleeping for two hours.

Exercise. Whenever I consistently exercise, my energy level is significantly higher, plus my stress level is naturally lower. I find that I feel much more able to deal with the challenges of life.

Eliminate a less-important life element. One big cause of stress is an overstuffed schedule. If you’re in this situation, seek out an element of your life that you can let go for a while and just let it go. Perhaps it means withdrawing from a community group. Maybe it means slowing down your schedule of washing the carpets. Whatever it is, step back and give yourself some breathing room in life.

The lower the stress, the less you spend.

The post Stress and Overspending appeared first on The Simple Dollar.

Figuring this out has truly been world-changing to me. It’s helped me to retain good ideas, remember to do certain things, and record data that I’ll need later on (like addresses and phone numbers and such).

One of the big reasons this has been such a step forward for me is that, by default, I have a forgetful mind in terms of short-term things that I need to do. I’m great at remembering long-term things, like the date in 1989 when I had my appendix removed, but short-term things slip my mind all the time if I’m not careful.

Most of the time, such slippage is no big deal, but when it comes to things like remembering to, say, pay the electric bill, it can be a big deal. I have been late on bills before simply because I forgot to pay them – not because I didn’t want to pay them or couldn’t afford to pay them. The same phenomenon holds true for other personal finance tasks, like remembering to rebalance an account or to check on my children’s 529.

Luckily, such incidences are becoming much less frequent as I figure out more and more techniques to keep me from forgetting such things.

Automatic transfers and bill payments have perhaps been the most useful tool for me in this regard. Every payment I have that has a static payment amount – meaning it’s the same every single month – is automated. I also have a number of automatic transfers into multiple savings accounts that are geared for specific goals.

An “inbox” is always in place on my desk. Whenever a new bill or other item to deal with comes in, I put it in that inbox and it stays there until it’s dealt with. I just go through the items in it two or three times a week and deal with what I find there.

A daily “to-do” list posted in several places reminds me of the things I need to do every day – in other words, defining my normal daily routine. I even include such mundane things as my hygiene routine on this list, but it also includes things like daily work tasks. I also have an instance of “check your idea notebook” and other such things on it.

Google Calendar helps me keep my schedule straight. I have monthly reminders of several different bills and other personal finance tasks on there. These calendar entries automatically send me reminder emails as the day gets closer. Beyond that, I also have every birthday and other event that I can possibly need to remember on it – and these also send reminders to me.

A strong mail-handling routine also helps things from falling through the cracks. All mail is collected in a central place in our home (the entryway table) and is processed in a batch once or twice a week, with all junk mail getting tossed and all bills going in my personal inbox. Doing a batch processing of the mail and having a prescribed way to handle all of the pieces keeps individual pieces from falling through the cracks.

The end result of all of this is that I rarely forget important little things. I don’t rely on my brain to keep all of this stuff straight – instead, there’s a “net” of safeguards and systems that help me to not lose anything through the cracks.

Isn’t it all kind of redundant? Yes, in several places in the system, I’ll see multiple reminders of the same thing. It can be kind of annoying to see mentions of my parents’ anniversary in three different areas.

However, such redundancy pretty much ensures that something important won’t slip by unhandled. I’d rather have three notices of my parents’ anniversary and remember it than just one notice and forget it.

If you have as strong a tendency towards short-term forgetfulness as I can have at times, it’s really useful to get a system in place that’s redundant and really easy to maintain. This system works well for me.

The post The Forgetful Mind appeared first on The Simple Dollar.

What I found is that I would absorb a few good ideas or techniques, but I would have absolutely no desire to go out in the kitchen and actually employ these new ideas and techniques. Instead, I always had this vague sense that I had somehow already accomplished the cooking effort for the day, so instead I would prepare something incredibly easy and call it good enough.

My only success, in fact, came when I would actually be in the kitchen preparing the meal at the same time as the hosts. I would do this by using the DVR, pausing when I needed to. If I didn’t do that, I usually wouldn’t bother. Not always – there were rare exceptions to this – but usually.

What I found instead is that if I actually wanted to prepare a meal in the kitchen, I was a lot better off reading about the technique and visualizing myself doing it. If I had no idea, I could always watch a YouTube video, but usually a passage from a technique-heavy cookbook like Joy of Cooking and some imagination would do the trick.

I never really thought about this again until recently, when I had a long chat with a guy who has a side business revolving around home repair and remodeling. He related a very similar experience to my own. Whenever he’d catch a show or two of a program like This Old House, his motivation to actually get out and do something went straight downhill.

What do these two experiences have in common? After watching someone else accomplish something, we felt much less compelled to go out and accomplish the same thing ourselves and, often, felt a subtle sense of having actually accomplished something merely by watching someone else do it.

There’s a biological explanation for this: mirror neurons.

Mirror neurons are neurons (i.e., pieces of the brain) that fire both when a person acts and when a person observes the same action performed by another. In other words, parts of our brain respond exactly the same when we do something or when we watch someone else do that same exact thing. Like, for example, preparing a meal or watching Paula Deen prepare one, or do a home repair project or watch Bob Vila do that same project.

To put it simply, we often get the same feeling from watching someone else do something that we would get from doing things ourselves.

When you think about it this way, it pops up time and time again in our lives. We feel happy when we read about someone else experiencing happiness and sad when they experience sadness. We feel a sense of accomplishment and joy when the hero overcomes adversity. We feel fear when the monster is sneaking up behind the hero on screen, even though there’s no monster in the room with us.

And, quite often, those emotional rushes are enough to fulfill us, reducing our drive to actually accomplish things.

Let me put it as simply as I can. If you want to succeed, do. If you want to follow, watch.

After a period of watching a lot of Food Network shows, I began to realize that I wasn’t actually becoming a better cook or, frankly, cooking much of anything at all. Instead, I began to read a lot more about cooking, often in the kitchen with the book open in front of me as I mixed something up and threw it in the oven.

The same phenomenon repeated itself when I dug deep into my own personal finance recovery. I would read lots of tips and often feel a strong sense that my finances were already in better shape because I had read it. It was only by continually pushing myself that I was able to actually improve my financial life, not just rely on mirror neurons to give me a sense that it was improving.

Watching and reading about someone else’s success is a great starting point for your own success. But that’s all it is, a starting point. It’s up to you to take the next step and actually do something. Don’t trick yourself into a false sense of accomplishment just because you watched someone else succeed with these tactics.

What are you going to do today?

The post Mirror Neurons: Why Watching Others Succeed Won’t Help You Succeed appeared first on The Simple Dollar.